Daunting question for Bath shipbuilder: What’s next?

A Bath Iron Works employee leaves the shipyard at the end of first shift on Friday. Gregory Rec/Staff Photographer

The loss of a Coast Guard contract to a competing shipyard is renewing concerns about Bath Iron Works’ dependence on the Navy and begging the question for one of Maine’s largest private employers: What’s next?

“The thing that rescued them before was the Aegis destroyers,” said Charles Colgan, a longtime Maine economist who has studied the shipbuilding industry for decades, referring to the guided missile destroyers built at BIW since the 1980s. “They have been living a long time on that one product – longer than expected. I think they were sort of counting on the Coast Guard to diversify them into another class of military ships.”

On Thursday, the Coast Guard awarded an initial contract to build up to nine offshore patrol cutters to a smaller shipyard well-known for building commercial vessels, Eastern Shipbuilding of Panama City, Florida. While the Coast Guard plans to reopen bidding to build the 10th cutter through ship No. 25, that window won’t open for BIW until fiscal year 2024.

The loss of the Coast Guard contract – initially valued at $2.4 billion but worth as much as $10.5 billion for all 25 cutters – could have major implications for BIW and, by extension, the companies that work directly with the General Dynamics-owned shipyard or rely on its workers.

It is also raising the question of what happens now for a shipyard entirely dependent on Navy contracts and which has no other immediate prospects.

BIW President Fred Harris said in a memo to shipyard employees that the company’s Coast Guard bid was “still too costly” despite outsourcing some jobs and working with the union to find ways “to become more flexible and efficient in the shipyard.” Union members had fought the outsourcing but agreed grudgingly to a four-year contract last December containing significant concessions on work rules, pay, pensions and health benefits in order to be more cost-competitive.

“No loss can ever be taken lightly in a time when the market is shrinking and each competition can have a dramatic effect on our workload,” Harris wrote. “Together we must move ahead and improve on safety, quality, schedule and cost in preparation for our next opportunity.”

BIW officials declined to comment further to the media Friday on the contract loss beyond Harris’ initial public statement that they “plan to meet with the Coast Guard to understand their selection decision.” But Harris had previously warned that failure to win the cutter contract could force BIW to shed 1,000 to 1,200 positions – or roughly one-third of the manufacturing sector.

“There has probably not been a time in Bath’s past where it’s more critical for us to be more efficient than ever before,” Harris told the Portland Press Herald in late 2014 in the midst of a contentious battle with the largest labor union over outsourcing.

SOME ABSORPTION FROM ATTRITION

There is plenty of work to go around at BIW today – enough, in fact, to boost employment above 6,000 workers, the yard’s highest level in more than a decade.

Two destroyers – the future USS Michael Monsoor and USS Rafael Peralta – are tied up at BIW’s pier and are in the latter stages of construction. Four more destroyers are at various stages of construction inside the sprawling yard along the shores of the Kennebec River. Three more Arleigh Burke-class destroyers are due to be built at BIW under a multiyear contract awarded by the Navy in 2013, providing years of work.

The amount of work will drop off, however, when the Navy takes delivery of the third and final Zumwalt-class “stealth” destroyer – the largest and most technologically advanced destroyer in Navy history – sometime later this decade (neither the Navy nor BIW provides completion dates). After that, BIW’s entire workload will be restricted to the Arleigh Burke-class line of guided missile destroyers that are also built by rival Ingalls Shipbuilding in Pascagoula, Mississippi.

Currently, two Arleigh Burke-class destroyers are tied up at Bath Iron Works’ pier in the latter stages of construction. Four more destroyers are being worked on inside the sprawling yard along the Kennebec River, and another three ships are slated to be built under a multiyear contract awarded by the Navy in 2013. Gregory Rec/Staff PhotographerGregory Rec/Staff Photographer

The president of BIW’s largest labor union, the Local S6 chapter of the Industrial Union of Marine and Shipbuilding Workers of America, said Friday that attrition from retiring workers could help absorb some of the job cutbacks resulting from the loss of the cutter contract. Roughly 1,000 workers currently have more than 30 years with the company, said Local S6 President Rich Nolan.

But John Dorrer, a former director of the Maine Department of Labor’s Center for Workforce Research and Information who analyzes employment trends in Maine and nationally, said the likely job losses of younger, high-skilled workers is problematic for BIW.

“These workers have been recruited over the last five years with some difficulty and at great expense,” said Dorrer, program director at Jobs for the Future’s Building Economic Opportunity Group.

“The dispersal of these skill sets will be hard to replace in the future,” Dorrer said. “It becomes even more problematic for BIW as an aging workforce with seniority retires and there will be a shortage of workers in the replacement line of succession. As such, major, strategic challenges loom for BIW.”

Cutbacks are undoubtedly coming because BIW has no other outstanding bids for work beyond the Arleigh Burke-class destroyers.

The Navy’s five-year shipbuilding plan for fiscal years 2017 to 2021 calls for two new destroyers per year which, if recent history held true, would be divided between BIW and Ingalls Shipbuilding. But the Navy continues to warn that congressionally mandated budget cuts as a result of spending caps – known as sequestration – could force the service to further trim its orders for destroyers and other ships.

“With each year of sequestration, the loss of force structure, readiness and future investments would cause our options to become increasingly constrained and drastic,” Adm. Jonathan Greenert, the former chief of naval operations, testified to a congressional committee in early 2015. “The Navy already shrank 23 ships and 63,000 personnel between 2002 and 2012. It has few options left to find more efficiencies.”

Colgan said BIW has weathered job uncertainty before but added that the dynamics could be different this time because the flow of destroyer work has ebbed. Even securing the Coast Guard contract may not have been a long-term solution, Colgan said.

“I think the prospects are that there will be less procurement of ships by the U.S. government and the ones that are built will be smaller and will employ fewer people,” he said.

Shipbuilders walk across the aft deck of an Arleigh Burke destroyer that’s currently under construction at Bath Iron Works in Bath. More than 6,000 workers are employed here, the yard’s highest level in more than a decade, but losing a lucrative cutter contract is expected to reduce that number in time. Gregory Rec/Staff PhotographerGregory Rec/Staff Photographer

EYEING THE BOTTOM LINE

Costs are also an increasingly important factor in federal contracting, as evidenced by the Coast Guard offshore patrol cutter contract.

Coast Guard officials refused Friday to disclose the criteria used to award the cutter contract, saying that specific information about contract decisions as well as general criteria are “not available for public release.” But Chief Warrant Officer Chad Saylor acknowledged that cost was a key factor.

“Affordability was a good piece of the decision into selecting the ultimate winner,” Saylor said.

The winner of the cutter contract, Eastern Shipbuilding of Florida, has little experience building large, complex ships for the military. But in a news release celebrating the contract award, the company played up the yard’s commercial track record and said the decision was “based on Eastern’s reputation as an industry leader in the construction of mid-range tonnage commercial ships.” Eastern noted that it has delivered 149 of 150 ships on time and on budget since 2002.

“Over the past 10 years, Eastern has delivered vessels ranging from 80 feet to 433 feet in length, many with complexity comparable to the Offshore Patrol Cutter,” the company said in the news release. “Efficient, commercially based production processes ensure affordability in the construction of these Coast Guard vessels.”

Several large yards have succeeded in bridging the two worlds of commercial and military shipbuilding.

BIW’s sister shipyard in San Diego, General Dynamics-owned NASSCO, builds auxiliary and support ships for the Navy – as opposed to destroyers and other combatants – as well as oil tankers and other commercial vessels. The third competitor for the Coast Guard contract, Bollinger Shipyards in Louisiana, has contracts to build two different versions of Coast Guard cutters but also does commercial work.

But most of the major builders of Navy warships – destroyers, aircraft carriers, frigates and submarines – are primarily Navy yards due to both the complexity of the work but also unique demands of the ships. Navy ships also cost significantly more to build than most commercial vessels.

LEARNING FROM THE LOST CONTRACT

The stratification of the defense and commercial shipyards is not a new issue.

A 2009 analysis by the U.S. Government Accountability Office, which was requested by Congress, found that the two different types of shipyards have different incentives and “divergent business models.”

“Commercial shipbuilding is structured on shared priorities between buyer and shipbuilder, a healthy industrial base, and maintaining in-house expertise,” the GAO report said. “The need to sustain profitability incentivizes disciplined practices in the commercial model. In Navy shipbuilding, the buyer favors the introduction of new technologies on lead ships – often at the expense of other competing demands – including fleet size. This focus – along with low volume, a relative lack of shipyard competition, and insufficient expertise – contributes to high-risk practices in Navy programs.”

Colgan, the Maine economist, said BIW could try to branch out into the private sector but that doesn’t play to the shipyard’s strengths.

“No one is going to outbid European companies on cruise ships,” Colgan said. “BIW’s niche is constructing highly complex vessels. Right now, there are a relatively limited number of options for that type of work. I think (BIW parent company) General Dynamics has known about this for a while. That’s why they were so aggressive with the Coast Guard contract.”

In his memo to BIW workers, Harris suggested that they need to learn from the loss even as they continue to focus on Navy contracts.

“This news is disappointing for BIW, our teammates and all who worked hard to put together an aggressive bid,” Harris wrote. “We must draw lessons from the experience and apply them to submitting a competitive bid for the upcoming DDG 51 (destroyer) multiyear contract. We expect to start working on that bid next year.”

Here at MaineToday Media we value our readers and are committed to growing our community by encouraging you to add to the discussion.

To ensure conscientious dialogue we have implemented a strict no-bullying policy. To participate, you must follow our Terms of Use. Click here to flag and report a comment that violates our terms of use.

jay fulton

What’s next? Could it be icebreakers? Could it be icebreakers to help us extend our country’s economic and military power in the soon-to-be ice free northern passages to the pacific? Russia has, I think, 30 icebreakers. How many do we have? Haven’t our senators brought this up before?

KennebunkportPatriot

You may need to discuss that with the Canadians, through whose waters some of the Passage may cross. Not only are those waters their rights; the Canadian have at least 26 icebreakers (17 Canadian Coast Guard).

Call-Sol

Most likely the Russians whose nuclear powered icebreakers are the envy of the Arctic.

Midwinter

I was thinking commercial container ships however there are two major obstacles that come to mind:

1. Costs, many of the container ships are built in Asia primarily S. Korea and China where we can’t complete on labor peirod.

2. Slowdown in trade, Hanjin is a recent example.

Most likely BIW will be idled down until there is a military need for new ships.

Call-Sol

According to W.S.J. there is a glut of container ships and containers, so don’t look to that segment of that end of the industry for help.

Midwinter

That’s a great point too. Perhaps Bath will be a ghost town in the next decade or so if BIW can’t reinvent itself.

Brian Mcdonnell

This is more than a simple Contract loss. Eastern Shipyard wants to build military ships, and this is their start. Article said they will hire 2000 new employees. Their goal is to get the ship done ahead of schedule. This will potentially position them to be competitive on Navy vessels. USCG does want new Icebreakers, and there sits Eastern Shipyard. Our Senators can cheer for BIW, but they cannot control costs. Both BIW and the Unions need to sit down and be honest with each-other about the future and what must be done to keep BIW in the game.

Margaret McBreairty

While I am certain that many factors were taken into consideration and resulted in this bid being awarded to a competing company, I suspect that one of those factors was our Governor. The federal government is not going to reward a racist government with huge contract awards that will have a positive impact on the economy.

jlmac

This would not surprise me at all. The Obama Administration is very well know for it’s discriminating tactics. In August 2010, the IRS distributed a BOLO (Be on the Lookout) list for Tea Party organizations applying for tax exempt status. Did the Obama Administration conclude ALL conservative organizations racist and targeted for punishment? My guess would be yes. Now look to the future and Hillary is our next President she’ll probably convert the remaining few combat vessels into transport ships for immigrants.

todiscus

Yeah, discriminating against a racist governor. What a strange track to go down.

jlmac

Like I said, no stranger than the current administration’s track of discrimination.

Bob S

Seriously jlmac, did you make this up before actually reading the story?Sounds like you are using the headline to fit your political perspective, vs making an informed decision based on fact!

jlmac

Not at all. I responded to a comment of someone else’s political perspective, fair game.

Moon cusser

My guess is your guess is wrong. This was a bid process. I doubt you are familiar with how it works.

And you are an @$$hole for your mention of Clinton. Your post was total bs – way off topic.

jlmac

I will most certainly take that ‘a hole’ comment as a compliment. My post was a reply to a comment about the Governor being a racist. Not my post but a reply. Freedom of speech. Oh, probably not familiar with that concept are you.

America’s Mr. Right

These people go through life placing blame on others.

America’s Mr. Right

So sue. Get over it.

America’s Mr. Right

Give us a break with the made up stories of misery.

JJFW

As one of Jack Welches rules is, control your own destiny or someone else will.
2 major changes must occur:
1: One, labor costs need to be competitive.
2: The cumulative tax burden in Maine renders so many companies cololetely out of competition. This one is actually far easier to achieve. Maine folks have got to elect senators and representatives that will significantly reduce the tax burden. That, is up to every citizen when the vote.

taryn

I am gaining approximately $6000-$8000 /month working on the internet. For those of you who are considering to do simple online task for 2-5 h every day at your home and make decent benefit in the same time… Test this task SECURE84.COM

gygg56

wollydevil

In the last union contract the employees gave up a lot so they could get the Navy Contract

MaineMod

I’d be curious about exactly what they gave up and what “a lot” really means. Local 6 has a very long and strong reputation for refusing to cross-train and filing costly grievances for the most minor of alleged “violations.” It is no wonder BIW could not compete.

wollydevil

So you are all in favor for company going against there contract ? If that’s true I should be able to speed by a cop and not get pulled over .

America’s Mr. Right

Actually, I have sped by cops without getting pulled over, especially easy when they are writing someone else a ticket.

It is a pure numbers game.

Margaret McBreairty

Apparently they are about to give up even more, their jobs. They must have felt that it was worth it. I do not believe that these are cost plus bids, but even if they were, competitive bidding for sure will be a significant factor.

todiscus

A reason for high taxes is the defense department budget which is over 50 percent of discretionary spending.

JJFW

The cumulative tax burden in Maine is horrific. Income has a heavy tax, sales tax is high, never mind exploding property taxes….

America’s Mr. Right

Maine property taxes are the worse. State income taxes are actually lower than other states, but Maine’s income tax is outrageous. My current home in an undisclosed state is worth $500K, and I pay 2/3 in property taxes for a home in Maine worth half that.

Call-Sol

War Mongers unit behind Hillary and Chelly to avoid ship building employment cycles at BIW…..gun control talk stops at the front gate.

Moon cusser

You’re an @$$hole. But you must realize that.

America’s Mr. Right

Do you feel better now? What has changed after your personal attacks?

I say nothing.

Call-Sol

Nothing but the contradiction between lobbying support for General Dynamics and tacit support for anti-war group rhetoric. Nothing is the correct answer.

Factshonesty

The senior managers and the execs at United Technology are compensated at more than 100% greater than Eastern Shipbuilding’s executives……the difference on the comp packages at Untied Tech is HUGE.

If UT wants to get competitive, they need to start by cutting the salaries of their top heavy organization – PERIOD. If you compare their top comp packages to Taiwanese and S. Korean execs, the delta is even greater.

US execs are the most over paid execs in the free world…..by a long-long shot.

todiscus

Good point. Same reason that European cruise ship builder build ships for less as the story mentions.

mikemattmic

Elect Donald Trump. No chance with Clinton.

Moon cusser

bullsh1t

darkgael

How would that make a difference. He would not be in a position to be the great negotiator/deal maker claims to be in in this situation. Neither would Clinton.

reed1v

Build sailboats!!

Bob S

So let me get this straight. According to the article, two of the new destroyers at the piers in final stages. Four more AB’s at various points in their construction at the yard, and contracts for three more in hand. Admittedly not the news we hoped for, but they are not ready to start padlocking the gates here folks!

medicontheedge

Here’s an idea. Build stuff people and businesses want. Stop putting all your eggs in the military basket. Harlan and Wolff in Belfast re-branded itself, building stuff people want, as an example.